The Corporate Reform Moment

Even George Bush now agrees that it is important to promote "corporate
responsibility."

The Enron, WorldCom and related corporate scandals have created a unique
opportunity to talk and think about corporate power, corporate form and
the rules governing corporate behavior.

In this special issue of Multinational Monitor, we hope to help kickstart
a discussion that has -- in the mass media, and on Capitol Hill, at least
-- remained too confined to the financial sphere, too timid and too remote
from structural proposals. In the articles and interviews in this issue,
corporate accountability strategists of different stripes offer an array
of diverse approaches to confront and control corporate power.

We have our own favorites, and think some strategies are more promising
than others. But our interest in this issue of the magazine -- and in a
second set of essays and interviews on the same set of topics which we
will publish in our October issue -- is in putting serious proposals on
the table for broad consideration.

One set of proposals suggests demarcating certain grounds as off-limits
to corporations. Some economic activities might be proscribed altogether
-- the trade in human beings, for example. Some economic transactions,
services or resource management issues may be handled by non-corporate
or non-market mechanisms.

In this issue, David Bollier discusses the commons -- shared assets owned
and managed on non-market principles by a distinct community of users
-- as an alternative to the corporate-dominated marketplace. As Bollier
points out, not only do commons embody a separate set of values from the
market, they are frequently more efficient than markets, whether that
efficiency be measured by preservation of natural resources or development
of computer software.

Patrick Bond introduces the concept of "decommodification," another approach
to mark certain services as outside the sphere of the market and corporate
control. The decommodification strategy, as its name suggests, is to demand
that a set of services -- including provision of a minimum supply drinking
water and electricity, as well as healthcare -- be provided to all citizens
as a basic right, rather than be treated as a commodity available only
to those who can pay. Because this demand calls for free provision of
services sufficient to meet people's basic needs (or at least provision
at a price affordable to all, varying by country context), it effectively
precludes service delivery by for-profit, corporate operators. Like Bollier,
Bond emphasizes the many ways that non-market approaches can be more efficient
than corporate transactions -- in particular, for-profit water or electric
corporations do not capture, and therefore do not care about, the public
health benefits of providing people with adequate amounts of water and
electricity (nor do they care about the public health costs of service
cutoffs).

A second set of strategies draws lines around what particular corporations
can do and how they can grow. These approaches are grounded in a reinvigorated
anti-trust law, and competition policy. For example, mergers over a certain
size could be flatly prohibited, or mergers over a certain size in a particular
sector -- say, agriculture -- could be barred.

Antitrust and competition policy should also have a lot to say about
structural limits on cross-sectoral involvement by a single company.

In the financial arena, it is now widely recognized that consolidation
of distinct functions in single enterprises created fundamental conflicts
of interest that helped spur the current scandals. Accounting firms turned
a blind eye to cooked books, so they could get consulting contracts with
the companies they were auditing. Financial analysts gave rosy projections
on company stock, because their investment banking divisions wanted to
maintain or attract contracts with the companies the analysts were evaluating.
In an interview in this issue, Robert Monks explains how a similar conflict
pervades pension fund management, to the detriment of pension fund beneficiaries.
All of these conflicts could simply be outlawed, by proscriptions on companies
doing business in both auditing and consulting, stock brokering and investment
banking, pension fund management and conflicting financial businesses,
and so on.

Structural divisions between businesses need not, and should not, be
confined to the financial sphere. To mention just a couple possibilities:
In an initiative to address the growing power of agribusiness, farmers
in the United States are urging that meat packers be barred from owning
cattle. To preserve small and local business, large retailers could be
banned from a jurisdiction on the basis of size.

A third group of approaches seek to hold the corporation accountable
to an expanded set of "stakeholders," or to redefine the corporation's
mission. In this issue, Robert Hinkley proposes a Code for Corporate Citizenship
that would prohibit companies from taking actions that harm a range of
stakeholders, including employees, consumers and communities. Others have
proposed giving stakeholders certain powers over or within corporations,
such as a position on the board of directors.

In an interview in this issue, Robert Monks offers a somewhat different
perspective. He proposes that shareholders can re-orient the corporation
to more socially responsible behavior, if the broad class of owners assert
control of corporations and manage them for long-term gain.

A distinct, and fourth collection of corporate reform ideas suggests
the importance of promoting new forms of corporate ownership, particularly
emphasizing worker control. In an interview in this issue, Marjorie Kelly
suggests several approaches toward this end. Emphasizing that shareholders
only make a one-time contribution of capital to a company but in exchange
receive perpetual control, Kelly raises the idea of diluting shareholder
control progressively over time. She suggests, as one possibility, lodging
residual control in employees. Another alternative, which Kelly does not
suggest, is that a for-profit corporation could morph over time into a
non-profit enterprise -- a reversal of the current trend to convert not-for-profit
and mutual insurance companies (such as Blue Cross) to for-profit status.

A fifth approach revolves around mandated disclosure regarding corporate
activities. In this issue, Ralph Estes elaborates the potential of the
disclosure approach, and his amplified Sunshine Standards for corporate
disclosure suggest the range of disclosures that could be required. The
U.S. experience with pollution reporting has demonstrated the power of
disclosure: mandated disclosures, without any additional regulatory requirements,
have led to dramatic reductions in an array of pollutants. On the one
hand, the disclosures themselves simply shamed the companies. On the other
hand, the now-public information empowered communities to campaign effectively
against corporate polluters.

A sixth set of reforms might involve affirmative mandates on corporations
to perform certain tasks. In the United States, the Community Reinvestment
Act (CRA) and related statutes are the most notable example of this kind
of corporate obligation. CRA requires banks to make loans in minority
and lower-income communities in which they do business. Utilities in the
United States have certain obligations to provide service to low-income
persons. Proposals have been floated to require banks to provide no-charge
"lifeline" accounts to low-income persons who cannot afford the banks'
minimum balance requirements. Pharmaceutical and other firms could be
mandated to invest a certain portion of their income in new research and
development. Most of these types of proposals are, by necessity, sector
specific, but they can powerfully direct corporate activities.

A seventh category of reform involves limiting the rights or permissible
behaviors of corporations. This approach encompasses a wide variety of
possibilities, from stripping away corporations' constitutional rights
in the United States and many other national systems, to adopting codes
of conduct prohibiting certain kinds of activities. In an interview in
this issue, Judith Richter discusses some of the international experience
with codes of conduct, noting what has historically succeeded, and what
has failed. She concludes that codes, if they are to be meaningful, must
be binding.

Another approach is to focus on sanctions for corporate misconduct. What
is clear is that current penalties are not sufficient, either to serve
punitive or deterrent purposes. Consider the Names in the News item in
this issue, where a Georgia-Pacific subsidiary cited for workplace hazards
that led to the deaths of two workers was fined a mere $91,000. In this
issue, Seth Morris discusses one of the most promising means to promote
corporate compliance with the law -- denial of government contracts to
repeat lawbreakers -- as well as the enforcement problems that have prevented
effective deployment of this tool. Other important sanctions proposals
meriting consideration include establishing private citizen rights to
enforce regulations and collect fines from corporate lawbreakers, equity
fines (with fines paid in stock rather than cash, making possible much
larger payments, and directly impacting shareholders) and receivership,
with crooked corporations placed under intensive and prolonged government
or judicial oversight and control.

This is only a partial taxonomy. There are countless other issues related
to corporate involvement in politics and culture, capital mobility, and
international trade and investment rules. Especially important is the
establishment and strengthening of countervailing institutions -- of which
trade unions are the most important -- but that is a topic beyond the scope
of this issue of Multinational Monitor.

The present challenge for those concerned about corporate power is two-fold:
to push for reforms -- at all levels -- that can be won in the short- and
medium-term; and to promote discussion and debate on more fundamental
reforms that may only be achievable in the long run. While there are of
course good and bad ideas, this is not the time to reflexively shunt aside
proposals either for "not going far enough," or for being "unrealistic."
We need to work to achieve the most that can be accomplished now, while
also creating a climate in which more far-reaching reforms can be attained.